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Bruce Berkowitz's Fairholme Fund presents a detailed thesis on Sears Holdings (SHLD) that paints...
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Friday, August 17, 2012, 9:13 AM ETBruce Berkowitz's Fairholme Fund presents a detailed thesis on Sears Holdings (SHLD) that paints a rosy scenario for investors with high-value real estate and increasing retail efficiencies still sitting as untapped potential. According to the case study, the company's disparate business lines aren't a disadvantage at all, but a source of liquidity and levers to drive long-term value. (SHLD presentation .pdf)
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:::Sears Holdings (SHLD): Sears Holdings, the operator of Sears and Kmart stores, is also the owner of proprietary brands such as Lands End, Craftsman, DieHard and Kenmore. Owner-operator Ed Lampert owns over 60% of SHLD shares outstanding between his personal holdings and those of his investment company. Since becoming Chairman following the merger of Kmart and Sears, Mr. Lampert has retired 78% of shares outstanding. These share repurchases, combined with cost reductions and acquisitions have contributed to a dramatic increase in book value per share since 2003 and, perhaps more importantly, have increased the number of square feet of real estate per share at a double digit annual rate. In addition to the widely-known retail outlets and brands, Sears owns over 90 million square feet of retail real estate space. In our view, the value of this real estate space is not reflected in current market valuations of the company. In order to maximize cash flows through the sale or lease of underperforming properties, the company created the SHC Realty division. SHC Realty not only leases and sells full lots, but also maximizes each property through the lease of off lots, demised space and separated in-line retail lots. Considering the current uncertainty with regard to the economy, particularly the real estate market, investors have failed to properly recognize this endeavor which is likely to produce exceptional long-term value. Sears is currently trading at less than .90 times stated book value which, as evidenced by the low real estate carrying value, is a significant discount to intrinsic value, in our view. A variety of exercises that assign an appropriate value to the real estate will suggest that the proper share price is vastly higher.:::
The analyses of SHLD by Fairholme and Horizon seem to imply that SHLD is currently valued at ~25% of total assets and earnings power.
The information is there in the open but you can see even on CNBC when Sear Holdings is mentioned you will have an expert say it is a disaster.
Heck even Cramer is saying not to buy the stock, which I might add is a good thing and you should buy the stock and do the opposite of what he says.
I think people are finally starting to come around to the idea that Sears is no longer a pure retail play, but more of a REIT/asset play.
The catalyst will be when Sears beats earnings. Until then we will see it go up and down like it is doing now.
They could say they have gold mines beneath their real estate and the stock will not budge.
It will be all about the earnings when they beat the number then they will say hey look at that real estate they own and we will have the largest squeeze in history.
Sears didn't invent the layoff. This happens all of the time in corporate America. The "employees" knew what they were getting into when they signed the employee agreements.
If you don't want the risk of getting laid off then don't work for a major corporation. Become a farmer or other small businessperson instead.
We started industries that supported the middle class, not ones that systematically killed it off. Why do you think China has far surpassed us in manufacturing? And before you say it, it's not just about cheap labor. It's not the only factor as to why this has happened, but that's too long a story to get into in this forum.
The average Chinese CEO makes a fourth of an American CEO, as well. If the "trickle down" approach actually still worked, many of our people would still be spending money on American made products and our industries would still be thriving. We've allowed too much of a gap between the people who run these companies and the people who work in them.
If we're not careful, the next couple of decades will be crucial as to what happens to American. So far we've been able to recruit a lot of talent from other countries, but our educational system is just not doing the job as it used to. The days of Bill Gates and Steve Jobs starting a company out of a garage, and making a fortune may not be possible in the direction we are going. I've even heard that a "Silicon Valley" like place will soon be in China. Again, something that would take too long to go into.
Sorry, I've gotten a little off the topic, but getting back to your response, I find your last two statements offensive to the American working class.
Your statements:
"Sears didn't invent the layoff. This happens all of the time in corporate America. The "employees" knew what they were getting into when they signed the employee agreements.
If you don't want the risk of getting laid off then don't work for a major corporation. Become a farmer or other small businessperson instead."
Unquote:
One, they didn't "invent the layoff," but they don't have to perpetuate it either. It has become line one, page one of defense in the corporate world playbook. Heck, let's just fire most everyone and leave the remaining to work twice as hard at minimum wage to keep our company going. That'll make the company produce profits and efficiency. I guess you need a Harvard degree in business to come up with that one. lol
Two, they didn't "know what they were getting into," because everyone accepts a job expecting that if they do their job well they will have a job in the future. "Agreements" are made by lawyers and corporate so people can be let go "at will." It used to be you had to have a good reason to fire someone, now you can just say "adios amigo," and hire a younger person at half the wage.
Three, not everyone can "become a farmer or other small businessperson instead." If that was the case these large corporations wouldn't exist. They need these people doing those jobs. I'm not sure what kind of logic you use, but that makes no sense at all. We all need certain people doing certain jobs to make it all work. Not everyone can open a business or become a farmer.
The 2008 crisis was just a warning. If we're not careful, something worse will happen in the future.
Regarding what you call corporatism...if it wasn't for Lampert and his team, Sears likely would not have survived the financial crisis of 2008 and 100% of the people would have lost their jobs.
To say he is evil for cutting jobs (lowering costs) is simply false. It is done so this organization can survive and thrive long-term. In the long run, this type of "corporatism" creates much more wealth and prosperity than business as usual ever has.
Eddie Lampert is a smart man. He bought into Kmart pennies on the dollar after the bankruptcy and used the money from Kmart real estate he sold, which, by the way, was way undervalued during the bankruptcy, to purchase Sears and renamed the company Sears Holdings Corp. Yes, you can say he helped Sears "survive the financial crisis of 2008" but there wouldn't have been a "crisis" in the first place if these people didn't run their companies into the ground. I haven't seen much change in the Kmart or Sears stores that is making customers come back to shop. As a lot of investors are saying, it's all about the real estate and not "so this organization can survive and thrive long-term," at least not as a retail company with over 200,000 hard working employees.
Also, why does firing a majority of your work force always have to be the first line of attack in "cost cutting" measures? I see so many places where cost cutting could begin, but never does. Suggestions are never asked from the people who work at these stores. Usually they are the last to know or asked about in any of these decisions.
I've talked to some of these employees at Kmart and Sears stores and asked them why it seems so dismal in their store. Off the record they'll tell you management has no respect for them, and hasn't a clue as to how to motivate or bring up moral. Instead of starting at the bottom firing people they should start in the middle. Most of these people working at the bottom would do anything to keep their jobs, but if you're treated like crap, then that's all you're going to get is crap.
As far as your statement, "this type of "corporatism" creates much more wealth and prosperity than business as usual ever has." I'm a little confused, this is "business as usual."
I don't see that happening unless they miss with their numbers.
If that happens Lampert's business plan is not working.
Now Barron is bullish and Lampert has started to execute his plan. The only way it can get bearish is if Lampert's plan is not working.
These institutional short sellers only care about algorithms, leverage and short term profits.
Again, if there is bad news this can happen but again it means Lampert's plan is not working.
If earnings get better and they beat the numbers look out above.
Sometimes it is true that "the bigger you are, the harder you fall." After all, wasn't Kmart and Sears the "kings of retail" before Walmart and Target came around? Never fall asleep at the wheel while your competitors are pulling up behind you.
http://bit.ly/Rs5KBe
http://tcrn.ch/Rs5KBh
http://cnet.co/Qd2Wk1
If this does not happen you will see the shorts taking the stock down and then Lampert taking the stock up again. This process will repeat and the stock will be good for trading only.